Oil prices in Uganda remain high despite 35% drop a global level

Oil prices in Uganda remain high despite 35% drop a global level

The price of petroleum at leading oil companies in Uganda has remained relatively and surprisingly high in sharp contrast to a sharp drop in global oil prices experienced over the past few weeks.

Major dealers Total and Shell and a number of other dealers have almost maintained the price of Petrol and Diesel in Kampala, which is almost 300 less compared to how Total and Shell sell their diesel,” said Muwanguzi.

Vivo Energy’s Managing Director Hans Paulsen told The Sunrise that local prices have not morrored those at the international level because of old stock as well as due to the depreciation of the Uganda Shilling.

Hansen said: “First and foremost is that Uganda is a landlocked country and most of the importation is done from the middle east via Kenya which means that at any specific time we have two to three months of stock in the logistic chain.

“As a result you cannot experience the resultant effect of the drop immediately. The other factor that also affects the price is the depreciation or appreciation of the Uganda Shilling. Our income is in Uganda Shillings however our purchases are in US Dollars therefore when the Uganda Shilling depreciates this has an impact on the prices. You may have noticed that the Uganda Shilling against the dollar was at UGX 2518 in May 2014 and at UGX 2775 by 30 November 2014.”

Why the drop in global oil prices?

The price of a barrel of crude oil this week reduced below US$ 70, the lowest it has been since May 2010. It is a 35% drop in global oil prices since January 2014, according to the BBC.

The drop in prices has been attributed to an increase in production by the United States. Analysts say that the US’s increase in production was expected to trigger a cut in production by the Oil cartel OPEC, in order to ensure that prices remained stable.

But in meeting of OPEC members that took place in Vienna, Austria last week, Saudi Arabia, which is the World’s Leading producer, and ruled by Sunnis, rejected calls by other countries such as Iran to lower production so as to boost prices. Analysts argue that Saudi Arabia’s decision to keep production high and therefore tolerate lower prices, was meant to punish their arch rivals the Iranians as well as Syria.

Iran and Syria is ruled and dominated by Shias, who have used the recent oil boom to support belligerent forces in Iraq, Syria and recently the Islamic State as a way to increase their dominance of the Arab world.

This has not gone down well with Saudi Arabia, forcing them to join the United States and other western aligned countries to fight against the IS.

“Many experts talk of a Cold War between Saudi and Iran, where on every major issue of regional concern an Iranian gain is viewed by the Saudis as a loss, and for the House of Al Saud alarm bells are ringing,”said…. for the BBC.

In the view Saudi Arabia, the BBC says, the US has effectively caved in, and allowed Iran off the hook following the election of a moderate President Hassan Rouhani.

“The Iranians were not supposed to be allowed any domestic uranium enrichment capacity, let alone get paid $7bn for the privilege,” the BBC adds.

In Syria, as the US-led coalition strikes the Islamic State (IS), the BBC notes, the pressure on Iranian ally Bashar al-Assad appears to have eased.

“Where once there was a determination to remove him from power, rumour is rife that the West will have to consider dealing with him to help fight the bigger threat of the Islamic State.

“Propped up by Iranian money and proxies such as Hezbollah, and cushioned with Security Council support by Russia, Assad looks to be safe.

“To make matters worse on the Kingdom’s southern and western borders, Shia rebels in Yemen, and protestors in Bahrain, only contribute to the sense that the Kingdom is being strangled by Iranian power from all sides.”

Apparently disappointed by the West’s mending of ties with her enemies, Saudi Arabia is using oil as a weapon to try to suffocate Iran, and Russia by attempting to create problems to their economies. Iran depends heavily (60%) on proceeds from oil. The Russian currency, the Rouble has weakened seriously over recent months by 35%.